White & Case offers industry-leading expertise in M&A and capital markets and is the destination practice for SPAC transactions. The New York team have represented clients in more than 50 SPAC IPOs that raised aggregate gross proceeds of more than $18 billion, and more than 24 SPAC business combination transactions with an aggregate enterprise value of more than $20 billion.
SPACs (special purpose acquisition or "blank cheque" companies) have recently regained prominence in the US, with H1 2020 seeing record-breaking levels of activity, both in terms of value (Bill Ackman's $4bn Pershing Square Tontine is the largest SPAC IPO to date, eclipsing previous records) and volume (SPACs accounted for around 30% of all US IPOs in H1 2020). One of the reasons for the revived interest is that experienced founder teams can benefit from a dislocated market to find good opportunities that yield attractive returns.
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Despite hitting the headlines, SPACs have been less common in Europe, with a majority of SPACs listing in London in the last ten years having a US emphasis (often acquiring US-focused businesses and subsequently relocating their listings from London to the US). One potential attraction of a London vs US listing is that the UK standard listing regime offers greater pre-acquisition flexibility for founders on shareholder protection matters such as voting and redemption rights, so that deals can be done and changes made without needing shareholder approval, giving greater execution certainty on the SPAC's acquisition.
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SPACs have several attractions. For founders, they typically require less initial capital and are easier and quicker to take to market than a commercial company or private equity fund. SPACs offer investors an opportunity to benefit from the founder team's expertise and investment track record, coupled with downside protections if an acquisition does not occur. For companies seeking capital and shareholders looking towards an exit, merging with a SPAC provides an alternative route to going public that may be cheaper, quicker and less risky compared to a traditional IPO. In addition, founders, investors and sellers can all benefit from holding highly liquid, publicly traded securities.
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However, SPACs have received criticism due to a perceived lack of transparency and the possibility of dilution due to so-called "promote" equity (typically up to 20%), which may be issued to the founders at nominal value. In the US, SPACs have also been criticised as being vulnerable to short-term investors. There are signs of innovation in the market, which appear to address some of these criticisms. Most notably, Pershing Square Tontine features several significant departures from the traditional structure, including waiving the typical founder "promote" shares and using "tontine" warrants (where investors who redeem their shares before a business combination have their warrants redistributed to those who do not). While it remains to be seen whether these innovations are adopted more widely, they could offer a way of enhancing the appeal of SPACs in the UK and other European markets.
First developed in the 17th century, and credited to Lorenzo de Tonti (who spent some time in the Bastille for reasons unknown), a tontine is an investment arrangement in which the last surviving member of a group is entitled to the relevant assets. Tontines have been described as "immoral contract[s]" which "put a premium on murder". Indeed, they have featured as plot devices in many fictional detective stories, including Agatha Christie's 4:50 from Paddington and the Simpsons, where Grampa Simpson and Mr. Burns are pitted against each other as the sole survivors of a tontine. A cautionary tale for Mr Ackman's investors perhaps.
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